Force majeure clause: meaning in the most significant non-Eu countries within commercial relations with Italian companies and operational recommendations.
By Avv. Antonio de Capoa
Introduction
Unfortunately, as clearly evident, the recent spread of the Coronavirus has had and will have, for a prolonged period of time, a very strong impact on the economy, trade and international contractual relations, affecting, in particular, the functioning of both the so-called supply chain and distribution chain. The casuistry of the effects on contractual relationships, with particular reference to non-fulfillment, is heterogeneous, but nevertheless, the common trait is represented by the delays and even the impossibility, for Italian companies, to fulfill their services (whether they are supplies of goods or provision of services), with a cascade effect that overwhelms the various economic operators, making it extremely difficult to classify the various responsibilities. In emergency situations (health firstly, and economic secondly) such as the current one, the various commercial operators who find themselves in the position of not being able to fulfill their contractual obligations, usually appeal to the so-called force majeure clause. The risk they may incur, however, is that of believing that in international transactions this institution is always applicable and therefore invocable, as governed by the Italian law and as commonly held therein. There is also a further delicate aspect to underline; while in preparing the contractual documents, great attention is paid to all the various aspects that characterize the performance, too often the clause governing force majeure is standard and is applied uniformly to all contracts stipulated by the Italian company, without taking into account the legal environment in which the foreign partner finds himself, on the erroneous assumption that "anyway, cases of force majeure are the same all over the world". Nothing more wrong; by way of example, in Egypt, the majority jurisprudence expressly excludes war from the category of cases of force majeure. It follows that the company that is about to enter into or review international contracts must necessarily provide the contractors to check very carefully how force majeure is regulated in the countries of interest, and above all how it is managed from a practical point of view. . In this sense, it is therefore useful - on the one hand - to briefly highlight the different meanings characterizing the institution of force majeure in non-EU countries of greatest interest, on the other hand to provide a series of "practical" recommendations aimed at protecting economic operators.
THE DIFFERENT MEANINGS OF "FORCE MAJEURE"
In general, it can be said that the Force Majeure Institute or other similar institution is recognized in almost all countries, even if there are nuances or significant differences between the different notions, due to the historical and cultural context of each country. ITALIAN LEGISLATION: Italian Law does not provide a positive definition of force majeure, but nevertheless recognizes in article 1256, paragraph 1, of the Italian Civil Code, the possibility that an obligation is extinguished when, for cause not attributable to the debtor, the performance becomes impossible. It is therefore up to the jurisprudence to determine the criticalities and limits of the institution in question. COMMON LAW COUNTRIES: The same happens in countries whose legal systems are based on the so-called "Common law", where generally there is no normative definition of the concept of force majeure (although there are variations of the same concept, such as, for example, in the English doctrine which speaks of "frustration" or the US concept of "impracticability", which allow the contractor to extinguish / suspend his obligation, when the performance becomes impossible for reasons not attributable to the same). It follows that, in common law systems, the parties who choose to call into question force majeure as an exemption from contractual liability, specifying in detail the individual cases of force majeure, have little choice but to define the concept itself within contracts. In this sense, the formulation of the force majeure clause in the context of a contractual relationship, if it is always and in any case of considerable importance, becomes increasingly important in cases where one or both parties to the relationship reside in a country characterized by such a legal system, precisely due to the fact that, in the absence of a normative regulation of the institute, it will be more complex to define responsibilities and consequences if not previously determined by agreement. COUNTRIES OF ISLAMIC LAW: The meaning of "force majeure" does not appear to be univocally framed (according to the canons characterizing civil law systems) even in countries of Islamic law. In fact, "force majeure" - known in Arabic as quwwat al-qanun - is not intended as a simple and mere external event, unpredictable, not attributable to the debtor and in any case beyond his control, but as a cause of justification due to the occurrence of an unpredictable event, but always and in any case intended as an "act of God". In accordance with the "casuistic" method typical of the discipline of Islamic contracts, however, the external event, or the "act of God", is identified as much in a "celestial fact" as in a "fact of man to which it is impossible resist". They are therefore potentially identifiable as causes of force majeure, for example, both the rain that destroys a crop and makes its delivery impossible, as well as an imperative order from the Authority. It should also be noted that the Shari'ah extends the field of application of "force majeure" not only to the hypothesis in which it has become impossible for the debtor to fulfill his performance, but also to the situation in which the debtor has become - due to of a change in circumstances relating to the obligations and fundamental rights of the contract - impossible to fulfill them exactly or in part. In fact, according to Muslim law, a contract should cease to be binding for the parties if there has been an (unforeseeable) change in the circumstances relating to the obligations and fundamental rights of the contract, such as to make it excessively burdensome for the obliged party, having to a contract always be fair, equitable and reasonable. It is worth underlining that excessive onerousness means - also in the light of the interpretations given by jurisprudence, in particular that of the Egyptian and Lebanese Courts (which are to be considered guides in the world of commercial law) - that increase in one parties’ burden, which could not have been foreseen or which could not be imagined or estimated. The foundation of the institution of force majeure, therefore, always lies in the principle of fair balancing of the rights and obligations of the contracting parties and its application represents an evident example of the reference to those principles of fairness, justice and sacredness that must always characterize a contract under Muslim law. It is necessary to underline, however, how the current laws of numerous Islamic countries (or those countries of the Islamic world that have allowed forms of codification and secularization) have provided, over time, to a gradual westernization of the concept of "force majeure”, striving to delineate its boundaries more (although the juridical substrate always remains the Shari'ah) and tending to give it a more restrictive meaning. FOCUS IRAN: For example, in Iran the institution of the force majeure must be considered fully existing in the legal system. The underlying event must be characterized by three well-defined profiles: inevitability; the unpredictability and extraneousness to the control of the parties. This is an interpretation that is entirely in line with that prevailing in most international legal systems, but differs from that of other Shari'ah-based systems. The COVID-19 epidemic seems to fall inexorably into the qualification of an inevitable, unpredictable, and uncontrollable event. It is important to underline that, while the Iranian legislation does not make any express reference to pandemics or epidemics as force majeure events, the reference of the Labor Law to events "similar to earthquakes-floods-wars", suggests that large-scale infections can be recognized as pathological events in a contractual relationship. RUSSIAN FEDERATION: The judicial system of the Russian Federation also delineates a generic definition of the concept of "force majeure", which means the occurrence of exceptional, unforeseeable, and unavoidable circumstances, such as to exempt the party who does not fulfill the contractual obligation from liability assumed, unless otherwise provided by law or by agreement of the parties. The Russian Supreme Court has given strong contribution in the definition process, in fact it is necessary to recognize a primary role for having contributed, through copious jurisprudence on this point, to the drawing up of a list of exceptional circumstances in the presence of which the exemption of "force majeure ” applies which requires a concomitant existence of the requirements of exceptionality and unpredictability referring to the specific case. In the Russian legal system, the indications regarding the identification of events qualifying as "force majeure" by the Russian Chamber of Commerce and Industry enjoy a particular legal value. In relation to contractual relations arising on Russian territory, this Body has the power to clarify which exceptional circumstances are to be considered as "force majeure" events. From the brief examination of the Russian legislation and measures in relation to the institution of "force majeure" epidemiological events can also be included. PEOPLE'S REPUBLIC OF CHINA: In a very similar way, Article 153 of the "General Principles of Civil Law of the People's Republic of China" and Article 117 of the "Contract Law of the People's Republic of China" call into question force majeure for unpredictable, unavoidable events , or in cases where objectively unsurpassable obstacles to compliance occur. The Chinese regulations cited above exclude the liability of the non-compliant party if determined by a force majeure, as provided, for example, by Article 107 of the "General Principles of the Civil Law of the People's Republic of China". A further provision of the law, in particular see Article 94 of the "Contract Law of the People's Republic of China" states that the parties can terminate the contract if a cause of force majeure has made the object impossible. With reference to the epidemic or, more precisely, pandemic, from Coronavirus, where the parties have indicated the epidemic event among the causes of force majeure, there should be no doubt about the absence of responsibility of the defaulting party for reasons related to the epidemic itself. Even if this event had not been expressly mentioned as a cause of force majeure, it is likely that the Chinese Courts would consider it as such. Such a statement derives from precedents, in the same sense, which have already occurred in the past. In fact, already in 2003, the SARS epidemic, for example, allowed the Chinese courts and arbitration bodies to consider this type of epidemic as a cause of force majeure. However, in some cases, or when the containment measures adopted by the Government had not completely prevented the execution of the service, some Courts did not consider excluding the responsibility of the party, if not only partially. Currently, the General Office of the Chinese Ministry of Commerce has decided to provide Chinese companies with force majeure certificates, issued to protect companies in the event of non-compliance with the delivery deadline for goods due to the epidemic. From what has been pointed out up to now, the international legislative framework is heterogeneous, inducing operators to define directly and specifically, hopefully in writing, the cases of force majeure and expressly establish the consequences related to their occurrence.
International Guidelines
At the international level, only the general principle expressed in article 7.1.7 of the UNIDROIT Principles allows, abstractly, an alignment of the various disciplines, through the ruling that the non-compliant party is exempt from liability if the non-fulfillment is due to an impediment circumstances beyond its control, and which the party itself was not reasonably required to foresee at the time of the conclusion of the contract or to avoid or overcome its consequences. A similar principle is contained in the 1980 Vienna Convention (art. 79) on the international sale of goods.
Another aspect to be taken into consideration in international contracts is the difference between the force majeure clause and the hardship clause.
In 2003 the International Chamber of Commerce (ICC) in order to provide a useful guide to international business operators, prepared the standard texts, respectively, of the clauses governing cases of force majeure and hardship. The so-called Force Majeure Clause, provides that the party that is unable to perform the contract due to the occurrence of a major cause, is not held responsible.
Otherwise, the hardship clause governs the case of excessive onerousness of the service. Its purpose is to allow the parties to renegotiate the terms of the agreements to allow them to be adapted to the new situation. If an agreement is not reached, and only in this case, it will be possible to request the termination of the contract.
It should further be noted that, while in the case of force majeure, the text suggested by the ICC governs the consequences of an unforeseen and unforeseeable event that makes one of the services impossible to perform, the circumstance contemplated by the hardship clause does not prevent the party who suffers it from executing the contract but simply makes its performance excessively onerous compared to the consideration.
If the event occurs, between contractors who have included the aforementioned clause in the negotiation relationship, the party invoking force majeure must notify the counterparty of the existence of the event by attaching proof that the event that occurred corresponds to what stipulated in the contract. As a result of this communication, the service is suspended to allow the resolution of the event occurred. Should the impeding condition persist, after a reasonable time has elapsed, the contract may be terminated.
In conclusion, in the light of the reflections carried out, addressing in broad terms the issue of force majeure linked to the Coronovirus, it is necessary to make a distinction between international contracts of medium-long duration and those of very short and short duration, given that , while for the former it is legitimate and reasonable that the party who has become unable to fulfill requests and obtains (possibly through Judicial Authority) a period of suspension of the contract - a period that will be reasonably longer or shorter, in proportion to the residual duration of the underlying contract - for the latter it will be quite difficult to hypothesize a suspension, given the limited time frame within which the obligation must / should have been fulfilled.
In the latter case, provided that this is not provided for in the contractual document and / or that the parties to the relationship do not find an agreement on the point, it becomes very difficult to think suspension as a remedy to the contract unlike the termination/dissolution of the contract, which is the typical solution given that the party defaulting may, by invoking force majeure or a similar institution, be exonerated from liability and therefore not be required to pay compensation or other form of compensation, even equivalent, to the creditor.
A further reflection should be made on an issue that does not seem to have been adequately addressed so far: in dealing with the issue of force majeure it is necessary to distinguish between contracts stipulated before the news on the existence of the virus was spread, but whose services were / must still fulfilled, at least partially, and the contracts stipulated after that in which the parties should have been aware of the existence of the virus and its rapid spread. Again: Is the existence of the virus itself in the country of one of the parties or in both, a valid reason to invoke force majeure or equivalent clauses, and therefore to evade the obligation of compliance?
As for the first question, the case of force majeure or a similar institution can, in theory, be invoked by the party who believes that they are no longer able to perform their service. But in case a contract was concluded after the news of the Coronavirus pandemic spreading outside the People's Republic of China, certainly, in the opinion of the writer, none of the parties may invoke force majeure or similar institutions, as the event was already known or should have been known using ordinary diligence, with the consequence that the party failing to comply must be held responsible and pay the damages.
The further and following problem is interesting: it could happen, as in fact it is materially happening, that a contractual party
Operational Recommendations
From a purely operational point of view, the following is generally recommended: (i) in the event of new negotiations or the stipulation of new contracts or even in the case of shared and multiple deliveries, prepare a contractual text that regulates - among other things - fully the cases of force majeure and the consequent solutions and hopefully try to get them signed; in case of lack of signature, take care to transmit them to the other party so that, on the one hand there is proof of the transmission, on the other hand there is a specification relating to the fact that the beginning of the execution of the contract is equivalent to tacit acceptance of the contractual document; (ii) given the extreme delicacy of the matter, avoid using standard clauses but take care to fully regulate cases of force majeure, and its consequences (suspension of the contract, for how many months, how to manage the recovery, payments, etc. .....), also and above all having in mind the countries in which it must then be invoked; (iii) if you are not yet in an emergency situation and therefore you are still theoretically able to fulfill the commitments made, notify the counterparty, for obvious correctness and in compliance with the repeatedly mentioned principle of good faith (Italy), to be in a country afflicted by the epidemic and that a rapid deterioration of the situation or in any case the occurrence of a situation that makes proper and/or timely fulfillment impossible (eg couriers who do not collect or do not deliver, the blocking of transport, etc ....); (iv) collect and keep as much documentation as possible on the state of the epidemic, its effects, etc..... (articles, services, reports, and so on), for future reference; (v) if, on the other hand, it is feared that the customer will not accept the service because they fear the danger of contagion (think of the widespread rumors, perhaps artfully, about the risk that agri-food products are means of contagion of the virus), acquire documents and evidence, including public evidence, which certifies that the production is regular, that the goods are rigorously subjected to controls, tests, etc ... in order to be able to effectively distrust the other party from accepting the service object of the contract; (vi) if a foreign company, debtor of a service, has invoked the application of force majeure, to obtain exemption from liability, and has adduced as evidence a certificate issued by a Chamber of Commerce, do not just accept this document itself, but investigate whether the epidemic has actually affected the foreign company in a significant way. More precisely, the certificates it itself do not automatically imply the application of force majeure and / or exemption from liability; (vi) if a company continues to send or retain its employees and / or collaborators and / or auxiliaries abroad, immediately adopt an accurate and detailed protocol on Travel Security. (vii) companies must update the Duvri, which is the risk assessment document. Then, again from a purely practical point of view, it is suggested to proceed as follows, distinguishing the case in which the Italian company is the company that must perform a service (be it a supply of goods or services) or is instead the debtor company of the payment. 1st case * first hypothesis The Italian company risks becoming in default, being no longer able to fulfill orders or perform its services. The advice is to warn and, if possible, forewarn the counterparty in advance, that an activity block could occur. This is due for the principle of good faith. With the alert communication, it will be necessary to correctly specify the reasons for which force majeure has occurred or is occurring (i.e. blocking of transport, blocking of border crossings, blocking of production, sub-suppliers who do not supply, shortage of materials, etc .......), so that any negligence is excluded. Even in the case of "simple" delay it is advisable to immediately notify the counterparty, informing them of the fact that "due to the impossibility of maintaining your normal production levels, for facts not dependent on your will, the delivery time of the goods subject to the contract cannot be respected and it will therefore be necessary to postpone the delivery. " It is then advisable to collect the documents in support of what has been stated (e.g. newspaper articles, government or local measures, correspondence with sub-suppliers or carriers, etc ........). It will also be appropriate to try to agree with the commercial partners shared solutions, which are fair and reasonable. Focus on machines and systems: If the company's production activity relates to machines and systems, the above indications will also be extended to any installation as well as to checks and / or tests. More precisely, if the contract also provides for the installation or the presence of company personnel at the purchaser's premise, it is advisable to communicate (if the contract is in progress) or insert (in case of the start of negotiations or stipulation of a new contract) a statement such as "it should be noted that some countries (after verification, add the name of the buyer's country:" including also .... "), have placed heavy limitations to the entry of Italian citizens into their national territory, which makes it extremely complex to be able to carry out the planned installation operations ". * second hypothesis The Italian company receives communications from its foreign suppliers / sub-suppliers in which, invoking force majeure, they declare that they are no longer able to fulfill their contractual obligations. It will be advisable to ask them for supporting documentation, and that the difficulties represented directly affect performance. More precisely, it is not sufficient for suppliers to invoke a general situation of difficulty due to the spread of the virus, but they must provide precise and accurate documentary evidence. The certificates issued by the Chambers of Commerce of some countries generally do not have a decisive and definitive character, and "must be taken with due care", them giving an indication but not a full proof from a legal point of view. Therefore, the advice is that the Italian company verifies with great accuracy the validity and truthfulness of the statements of the foreign company, and makes sure that there has been no underlying negligence (e.g. insufficient stocks, errors in assessing the severity of the contagion, etc ......) which would exclude force majeure, thus becoming the latter responsible for non-fulfillment and therefore obliged to compensate the damages suffered by the Italian company. 2nd case The Italian company, due to the emergency situation, risks not being able to immediately honor its commitments to the foreign company. The same recommendations set out in the first hypothesis apply. Bologna - March 16, 2020